How Does a Lapse in Car Insurance Coverage Affect Rates?

There are multiple factors that can affect your car insurance rates. From your driving record to the car insurance company you choose, each factor influences what amount you pay to keep your car insured. While some factors are obvious, there are some factors that many people are unaware of which can have detrimental effects on your auto insurance rates. 

A car insurance coverage lapse can increase your insurance rates. Not only that, but this can even lead to your insurance company canceling your policy. In some rare cases, it might even get you into a big financial and legal issue. So what is this lapse in coverage and how can you avoid it?

What is Insurance Coverage Lapse? 

A coverage lapse is any period when you are the registered owner of a car but there is no active car insurance policy for it. If you own and operate a car, you need to have all the appropriate car insurance policies required by your state.

For example, almost every state requires drivers to carry liability coverage. Other mandatory auto insurance policies include a personal injury protection plan, uninsured motorist coverage, etc. So if you live in a state where it’s mandatory to have any of these policies, not having an active policy will be considered a lapse in coverage.

How Does Lapse in Coverage Happen?

There are multiple reasons why a lapse in your coverage can occur. The most common reason for a coverage lapse is missed premium payments. Every month/year, policyholders need to pay some amount of money, called insurance premiums, to keep their policies active. 

The policy premium payment must be done on time and if missed, could result in the termination of the policy. So for any reason, if you are unable to pay the insurance premium will result in a coverage lapse.

Almost every car insurance company offers a grace period which is a period past your policy renewal date. In case you miss the payment deadline, you get extra days to make the payment before your policy is canceled. 

Switching car insurance policies is also a reason for insurance coverage lapse. For example, if someone decides to change their car insurance company, not doing the switching process properly can result in an insurance coverage lapse. 

Let’s say you buy the policy from the new auto insurance company and cancel your current insurance policy. But what happens if your new policy is not activated for some reason? Your new policy might take a few days to even a month to get activated, and the period when you do not have an active car insurance policy will be a lapse in your coverage. 

Other Common Reasons for Coverage Lapse include:

  • Missing the policy renewal date
  • Not paying the premium 
  • You are planning not to drive the car
  • Selling your car

People who are planning on not driving their car for some time might think of just terminating their auto insurance policies. This is not a smart move as it would come under insurance coverage lapse and would increase your rates by a lot.

If you are not going to drive your car for a long time or just want to sell your car and be at the mercy of public transportation, then it is advised that you get non-owners car insurance. This policy covers most of the important and mandatory policies required by your state while costing only a fraction of what the full coverage would cost. 

Coverage Lapse’s Effect on Car Insurance Affect Rates

A lapse in your insurance coverage is bound to increase your auto insurance rates. Every major car insurance company in the US increases the prices of their policies (which includes liability insurance, collision coverage, etc) if they notice any lapse in your coverage. 

How much are the price hikes? That depends on the insurance company and the duration of the lapse. For example, insurance companies such as Farmers, and Allstate have some of the highest spikes in the country, whereas USAA and Geico offer some of the mildest hikes in insurance rates following insurance coverage lapse. 

Depending on the time you did not have an active auto insurance policy, the price hike can vary. Usually, coverage lapses of less than 30 days are considered mild and do not attract steep price hikes. 

According to the data we have analyzed, an insurance coverage lapse of fewer than 30 days would increase your insurance rates by anywhere between 5% to 12%. While these are general figures, this hike can be much higher on the basis of your driving record and additional factors.

Coming to insurance lapse for over 30 days, the price hike starts getting steeper. If you do not have an active car insurance policy (mandatory, such as liability insurance/personal injury protection plan/uninsured motorist coverage), you can expect a price hike of anywhere between 15% to 35%. Your driving record and your auto insurance company is also a contributing factor here. 

Paying even 5% more for auto insurance coverage just because you were careless about renewing your policy is not worth it. This is why it is better to always pay the insurance premiums on time and be extra careful when switching car insurance policies. 

Make the right choice when looking for the perfect car insurance company. If you have had a lapse in your insurance coverage, then find better auto insurance companies that offer great policies at great rates. Navigate to this website to find great policies at great prices.

Conclusion

Avoiding insurance coverage lapse is the best thing you can do. Not only will a lapse in your coverage increase your insurance rates and make it practically impossible to get better prices, but also get you in a sea of trouble if you get in a car accident without an active policy.

 

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